Sample 842377

NRM1 Cost Management
Handbook
The RICS New rules of measurement: Order of cost estimating and
cost planning of capital building works (referred to as NRM1) is the
cornerstone of good cost management of capital building works projects
enabling more effective and accurate cost advice to be given to clients
and other project team members, while facilitating better cost control.
The NRM1 Cost Management Handbook is the essential guide to how to
successfully interpret and apply these rules, including explanations of how
to:
quantify building works and prepare order of cost estimates and cost
plans;
use the rules as a toolkit for risk management and procurement;
analyse actual costs for the purpose of collecting benchmark data and
preparing cost analyses;
capture historical cost data for future order of cost estimates and
elemental cost plans;
employ the rules to aid communication;
manage the complete cost management cycle;
use the elemental breakdown and cost structures, together with the
coding system developed for NRM1, to effectively integrate cost
management with Building Information Modelling (BIM).
In the NRM1 Cost Management Handbook, Benge explains in clear terms
how he intended NRM1 to be used in familiar quantity surveying tasks,
as well as a range of activities of crucial importance for professionals
in years to come. Worked examples, flow charts, diagrams, templates
and checklists ensure readers of all levels will become confident and
competent in the use of NRM1. This book is essential reading for anyone
working with NRM1 and is the most authoritative guide to practice
possible for those preparing to join the industry.
David P. Benge is a Fellow of the Royal Institution of Chartered
Surveyors (RICS) with over 30 years experience as a quantity surveyor
and educator. As Head of Quality Management at Gleeds, international
management and construction consultants, David focuses on service
improvement for all aspects of quantity surveying and project
management activities with a worldwide remit. Through Gleeds,
he provides quality consulting services and training on the use and
application of the NRM suite of measurement rules. David authored both
the first and second editions of NRM1 for the RICS and was co-author
and executive technical editor on both NRM2 and NRM3.
This page intentionally left blank
NRM1 Cost
Management
Handbook
The definitive guide to measurement and
estimating using NRM1, written by the
author of NRM1
David P. Benge
First published 2014

by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
2014 David P. Benge
The right of David P. Benge to be identified as author of this work has been asserted by him in
accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form
or by any electronic, mechanical, or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage or retrieval system, without permission
in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are
used only for identification and explanation without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Benge, David P.
NRM1 cost management handbook / David P Benge.
pages cm
Includes bibliographical references and index.
1. BuildingCost controlHandbooks, manuals, etc. I. Royal Institution of Chartered Surveyors.
II. Title.
TH438.15.B46 2014
690.068'1dc23
2013033979
ISBN13: 978-0-415-72077-9 (pbk)
ISBN13: 978-1-315-84875-4 (ebk)
Typeset in Goudy and Helvetica by
Servis Filmsetting Ltd, Stockport, Cheshire
For Gillian,
my wife, soulmate and best friend,
and
my children
Tim, Rebecca and Chris
Summary of contents
List of figures
List of tables
List of examples
Foreword by Sean Tompkins
Foreword by Richard Steer
Foreword by Stuart Earl
Preface
Acknowledgements
About the author
Abbreviations
xvi
xix
xx
xxv
xxvii
xxix
xxxi
xxxvii
xxxix
xli
Part 1 Introduction
1 Cost management
2 Cost estimating and cost planning
3
17
Part 2 Order of cost estimates

3
4
5
6
7
8
Order of cost estimates an overview

Commencing an order of cost estimate
Preparing an order of cost estimate
Computing the works cost estimate
Order of cost estimate a worked example
Preparation of an initial elemental cost model using the elemental
method of estimating
9 Initial elemental cost model a worked example
31
35
53
63
77
99
127
Part 3 Cost planning

10
11
12
13
14
15
16
17
18
19
20
21
22
23
Cost planning an overview

Format, structure and codification of cost plans
Preparing a cost plan
Quantification and the use of the tabulated rules of measurement for cost
planning
Facilitating works (group element 0)
Substructure (group element 1)
Superstructure (group element 2)
Internal finishes (group element 3)
Fittings, furniture and equipment (group element 4)
Services (group element 5)
Prefabricated buildings and building units (group element 6)
Work to existing buildings (group element 7)
External works (group element 8)
Deriving unit rates for building components, sub-elements and elements
137
153
163
173
187
201
231
273
283
291
335
341
355
399
vii
Contents
24
25
26
27
Calculating the building works estimate

Main contractors preliminaries (group element 9)
Main contractors overheads and profit (group element 10)
Calculating the works cost estimate
423
427
441
445
Part 4 Estimating cost targets for non-building works items and risk allowances
28
29
30
31
32
33
Project and design team fees (group element 11)

Other development and project costs (group element 12)
Setting and managing risk allowances (group element 13)
Estimating the possible effects of inflation (group element 14)
Establishing the cost limit
Taxes and incentives
451
467
473
505
515
519
Part 5 Writing cost estimate and cost plan reports

34 Reporting of cost estimates and cost plans
529
Part 6 Designing pricing documents using NRM 1

35 Pricing documents
559
Part 7 Analysing bids and collecting data using NRM 1
viii
36 Analysing bids and collecting cost data
579
Bibliography
Index
585
587
Contents
List of figures
List of tables
List of examples
Foreword by Sean Tompkins
Foreword by Richard Steer
Foreword by Stuart Earl
Preface
Acknowledgements
About the author
Abbreviations
xvi
xix
xx
xxv
xxvii
xxix
xxxi
xxxvii
xxxix
xli
Part 1 Introduction
1 Cost management
Introduction
1.1
What is cost management?
1.2
Basic principles of cost management
1.3
Why is cost management important?
1.4
Objectives of cost management
1.5
Responsibility for cost management
1.6
The role of the cost manager
1.7
The cost management cycle (the Benge Cycle)
1.8
Relationship of the documents that comprise the RICS suite of
new measurement rules
1.9
NRM 1 and building information modelling (BIM)
1.10 Benefits of the rules
3
3
3
4
4
5
5
5
6
6
10
11
2 Cost estimating and cost planning

Introduction
2.1
Cost estimates and cost plans
2.2
Process models for managing and designing building projects
2.3
An overview of the cost-estimating and cost-planning stages
2.4
Impact of procurement and contract strategies on cost planning
2.5
Review and approval process
17
17
17
18
19
21
28
Part 2 Order of cost estimates

3 Order of cost estimates an overview
Introduction
3.1
Purpose of an order of cost estimate
3.2
Types of order of cost estimate
3.3
When is an order of cost estimate prepared?
31
31
31
32
33
4 Commencing an order of cost estimate

Introduction
35
35
ix
Contents
4.1
4.2
4.3
4.4
4.5
Planning an order of cost estimate

Order of cost estimate framework
Methods of measurement
Elemental method (or elemental estimate)
Information requirements at order of cost estimating stage
5 Preparing an order of cost estimate

Introduction
5.1
Steps to preparing an order of cost estimate
5.2
Composition of an order of cost estimate
5.3
Checklist for order of cost estimates
53
53
53
59
59
6 Computing the works cost estimate

Introduction
6.1
6.2
Estimating the cost of building works (estimate 1A)
6.3
Estimating the cost of main contractors preliminaries
(estimate 1B)
6.4
Estimating the cost of main contractors overheads and profit
(estimate 1C)
6.5
Compilation of the works cost estimate (estimate 1)
63
63
63
63
7 Order of cost estimate a worked example

Introduction
7.1
Information gathering
7.2
Development of a work breakdown structure
7.3
Cost managers assumptions and data gathered
7.4
Generation of quantities for order of cost estimate
7.5
Computing the order of cost estimate
7.6
Presenting the order of cost estimate
77
77
77
85
88
90
91
96
8 Preparation of an initial elemental cost model using the elemental

method of estimating
Introduction
8.1
The elemental method of estimating
8.2
Steps to preparing an initial elemental cost model
8.3
Elemental breakdown for building works
8.4
Measurement of building elements
8.5
Production of the building works estimate (estimate 1A)
8.6
Calculation of element unit quantities
8.7
Calculating elemental cost targets and the building works
estimate
8.8
9 Initial elemental cost model a worked example
Introduction
9.1
Basis of elemental cost model
9.2
Assumptions and data gathered
9.3
Generation of element unit quantities
9.4
Compiling an initial elemental cost model
9.5
Presenting the initial elemental cost model
35
37
40
45
49
75
76
76
99
99
99
101
103
104
105
105
124
125
127
127
127
128
128
128
132
Contents
Part 3 Cost planning

10 Cost planning an overview
Introduction
10.1 What is the purpose of cost planning?
10.2 Cost plans
10.3 Information requirements
137
137
137
138
140
11 Format, structure and codification of cost plans

Introduction
11.1 Hierarchy of elements and components
11.2 Cost plan framework
11.3 Codification of cost plans
153
153
153
154
157
12 Preparing a cost plan

Introduction
12.1 Steps to preparing a cost plan
12.2 Composition of a cost plan
12.3 Checklist for cost plan
163
163
163
166
167
13 Quantification and the use of the tabulated rules of measurement for cost
planning
Introduction
13.1 General approach to measuring building works
13.2 Use of the tabulated rules for building works
13.3 Use of the tabulated rules for other group elements
13.4 Use of the tabulated rules for risks
13.5 Degree of measurement
13.6 Measurement notation
13.7 Quantifying and describing components for cost plans
13.8 Curved work
13.9 Work to and within existing buildings
13.10 Work not covered by the rules
13.11 Inadequate design information
13.12 Information required by the cost manager
173
173
173
175
176
176
176
178
182
184
184
185
185
185
14 Facilitating works (group element 0)

Introduction
14.1 Method of measurement
14.2 Toxic/hazardous material removal (element 0.1)
14.3 Major demolition works (element 0.2)
14.4 Temporary support to adjacent structures (element 0.3)
14.5 Specialist groundworks (element 0.4)
14.6 Temporary diversion works (element 0.5)
14.7 Extraordinary site investigation works (element 0.6)
187
187
187
187
192
193
195
197
198
15 Substructure (group element 1)

Introduction
15.2 Risks associated with substructure works
15.3 Substructures (element 1.1)
15.4 Standard foundations (sub-element 1.1.1)
15.5 Specialist foundations (sub-element 1.1.2)
201
201
201
202
203
204
206
xi
Contents
15.6
15.7
15.8
xii
Lowest floor construction (sub-element 1.1.3)

Basement excavation (sub-element 1.1.4)
Basement retaining walls (sub-element 1.1.5)
216
218
224
16 Superstructure (group element 2)

Introduction
16.2 Frame (element 2.1)
16.3 Upper floors (element 2.2)
16.4 Roof (element 2.3)
16.5 Stairs and ramps (element 2.4)
16.6 External walls (element 2.5)
16.7 Windows and external doors (element 2.6)
16.8 Internal walls and partitions (element 2.7)
16.9 Internal doors (element 2.8)
231
231
231
231
241
247
254
257
264
267
270
17 Internal finishes (group element 3)

Introduction
17.2 Wall finishes (element 3.1)
17.3 Floor finishes (element 3.2)
17.4 Ceiling finishes (element 3.3)
273
273
273
274
274
278
18 Fittings, furniture and equipment (group element 4)

Introduction
18.2 Fittings, furnishings and equipment (element 4.1)
283
283
283
283
19 Services (group element 5)

Introduction
19.2 Sanitary installations (element 5.1)
19.3 Services equipment (element 5.2)
19.4 Disposal installations (element 5.3)
19.5 Water installations (element 5.4)
19.6 Heat source (element 5.5)
19.7 Space heating and air conditioning (element 5.6)
19.8 Ventilation (element 5.7)
19.9 Electrical installations (element 5.8)
19.10 Fuel installations (element 5.9)
19.11 Lift and conveyor installations (element 5.10)
19.12 Fire and lightning protection (element 5.11)
19.13 Communication, security and control systems (element 5.12)
19.14 Specialist installations (element 5.13)
19.15 Builders work in connection with services (element 5.14)
291
291
291
293
295
295
301
304
305
308
310
317
318
324
326
329
332
20 Prefabricated buildings and building units (group element 6)

Introduction
20.2 Complete buildings (sub-element 6.1.1)
20.3 Building units (sub-element 6.1.2)
20.4 Pods (sub-element 6.1.3)
335
335
335
336
337
338
Contents
21 Work to existing buildings (group element 7)

Introduction
21.2 Minor demolition works and alteration works (element 7.1)
21.3 Repairs to existing services (element 7.2)
21.4 Damp-proof courses/fungus and beetle eradication
(element 7.3)
21.5 Facade retention (element 7.4)
21.6 Cleaning existing surfaces (element 7.5)
21.7 Renovation works (element 7.6)
341
341
341
342
345
22 External works (group element 8)

Introduction
22.2 Site preparation works (element 8.1)
22.3 Roads, paths, pavings and surfacings (element 8.2)
22.4 Soft landscaping, planting and irrigation systems (element 8.3)
22.5 Fencing, railings and walls (element 8.4)
22.6 External fixtures (element 8.5)
22.7 External drainage (element 8.6)
22.8 External services (element 8.7)
22.9 Minor building works and ancillary buildings (element 8.8)
355
355
355
356
360
363
368
372
373
379
393
23 Deriving unit rates for building components, sub-elements and elements

Introduction
23.1 Hierarchical structure of cost data
23.2 Sources of building cost data
23.3 Factors affecting cost data
23.4 Pitfalls of using cost analysis and benchmark analysis
23.5 Determining the cost per m of gross internal floor area for
building works
23.6 Storey height
23.7 Determining functional unit rates for building works
23.8 Estimating element unit rates (EURs)
23.9 Estimating unit rates for components
399
399
399
400
401
402
24 Calculating the building works estimate

Introduction
24.1 Composition of the building works estimate
24.2 Determining the building works estimate
423
423
423
424
25 Main contractors preliminaries (group element 9)

Introduction
25.1 What are preliminaries?
25.2 Estimation of preliminaries costs
25.3 Main contractors preliminaries costs
25.4 Subcontractors preliminaries costs
25.5 Estimation of main contractors preliminaries costs
427
427
427
428
429
432
432
26 Main contractors overheads and profit (group element 10)

Introduction
26.1 Main contractors overheads and profit
441
441
441
347
349
350
350
403
412
412
412
418
xiii
Contents
26.2
26.3
Subcontractors overheads and profit

Estimation of main contractors overheads and profit
27 Calculating the works cost estimate

Introduction
27.1 Composition of the works cost estimate
27.2 Determining the works cost estimate
441
442
445
445
445
445
Part 4 Estimating cost targets for non-building works items and risk allowances
xiv
28 Project and design team fees (group element 11)

Introduction
28.1 Project and design team fees
28.2 Estimation of consultants fees (element 11.1)
28.3 Estimation of main contractors pre-construction fee (element 11.2)
28.4 Estimation of main contractors design fees (element 11.3)
28.5 Subcontractors design fees
28.6 Establishing the cost target for project and design team fees
451
451
452
452
458
461
464
464
29 Other development and project costs (group element 12)

Introduction
29.1 What are other development and project costs?
29.2 Communication
29.3 Estimation of other development and project costs
467
467
468
470
471
30 Setting and managing risk allowances (group element 13)

Introduction
30.1 Risk management
30.2 Principles of risk management
30.3 Risk management and NRM 1
30.4 Risk management of building projects
30.5 Application of risk management to building projects
30.6 What is a risk allowance?
30.7 Formal risk analysis
30.8 Qualitative risk assessment
30.9 Quantitative risk assessment
30.10 Methods of quantifying the risk allowance
30.11 Risk response and risk allocation
30.12 Setting and controlling the risk allowance (estimate 4)
473
473
474
474
475
476
478
478
480
485
486
488
496
499
31 Estimating the possible effects of inflation (group element 14)

Introduction
31.1 What is inflation?
31.2 Estimating the effects of inflation on a building project
31.3 Estimating the cost of tender inflation (estimate 5A)
31.4 Estimating the cost of construction inflation (estimate 5B)
31.5 Producing the inflation estimate (estimate 5)
31.6 Estimating inflation for multiple time periods
505
505
506
507
508
510
511
512
32 Establishing the cost limit

Introduction
32.1 What is the purpose of the cost limit?
32.2 Determining the cost limit
515
515
515
516
Contents
33 Taxes and incentives

Introduction
33.1 Value added tax
33.2 Capital and incentive allowances
33.3 Grants
519
519
519
522
524
Part 5 Writing cost estimate and cost plan reports

34 Reporting of cost estimates and cost plans
Introduction
34.1 What is the purpose of a cost estimate or cost plan report?
34.2 Basic rules for writing cost estimate or cost plan reports
34.3 Characteristics of a good cost estimate or cost plan report
34.4 Organising the content of a cost estimate or cost plan report
34.5 Structure and content of cost estimate and cost plan reports
34.6 Communicating the cost estimate or cost plan
529
529
529
531
532
532
533
555
Part 6 Designing pricing documents using NRM 1

35 Pricing documents
Introduction
35.1 Using the NRM 1 cost plan framework as a pricing document
35.2 Contract sum analysis
559
559
559
560
Part 7 Analysing bids and collecting data using NRM 1

36 Analysing bids and collecting cost data
Introduction
36.1 Changing contract strategies
36.2 Framework for collecting cost data
36.3 Analysing bids and collecting cost data
36.4 Benchmarking
579
579
579
581
582
582
Bibliography
Index
585
587
xv
Figures
1.1
1.2
1.3
2.1
2.2
xvi
The cost management cycle (the Benge Cycle)

Relationship and purpose of the RICS NRM suite of measurement rules
Benefits of NRM 1
Build-up of total building project estimate
Relationship between the RICS formal cost-estimating and costplanning stages and both the RIBA Work Stages and OGC Gateways
4.1 Use of a work breakdown structure to organise an order of cost estimate
4.2 Order of cost estimate framework
4.3A Interpretation of internal face (a) cavity wall construction
4.3B Interpretation of internal face (b) curtain walling arrangement and
(c) curtain walling arrangement with upstand edge beam
4.4A GIFA measurement industrial and warehouse unit, including offices
at first floor level
4.4B GIFA measurement industrial and warehouse unit, including
loading bay
4.5 GIFA measurement cinema
4.6 Delineation of functions in a multifunction building
5.1 Steps in preparing an order of cost estimate
5.2 Composition of an order of cost estimate
6.1 Works cost estimate in the context of the order of cost estimate
framework
6.2 Works cost estimate process map
6.3 Composition of building works estimate
7.1 Drawing showing the existing site layout and the existing office building
7.2 Elevations and plans of proposed hotel and office development
7.3 Architects area schedule for proposed hotel and office development
7.4 Work breakdown structure for order of cost estimate for proposed
hotel and office development
7.5 Calculation of quantities for order of cost estimate for proposed hotel
and office development
7.6 Order of cost estimate form of presentation
8.1 Works cost estimate in the context of the order of cost estimate
framework
8.2 Steps in preparing an initial elemental cost model
8.3 Group elements and elements for building works
8.4 Steps in computing the building works estimate
8.5 Calculating the EUQ for facilitating works
8.6 Substructure elements scenario 1
8.9 Categories of upper floor
8.10 Measurement of roofs
8.11 Measurement of stairs
7
8
14
18
20
36
39
41
42
44
45
46
47
54
59
64
64
65
78
80
85
87
90
98
100
101
103
106
107
109
109
110
112
113
114
Figures
8.12
8.13
8.14
9.1
9.2
11.1
11.2
11.3
11.4
11.5
12.1
12.2
12.3
13.1
Measurement of external walls

Calculating the EUQ for external works
Works cost estimate process map
Drawing showing section through proposed hotel building
Initial elemental cost model form of presentation
Cost plan framework
Cost breakdown structure for a building project
Typical cost breakdown structure for group element substructure
Typical cost breakdown structure for a complete building project
Contract breakdown structure works packages
Steps in preparing a cost plan
Composition of a cost plan
Composition of the works cost estimate
Structure and format of the tabulated rules for the measurement of
building works
13.2 Structure and format of the tabulated rules for the measurement of
other group elements
13.3 Structure and format of the tabulated rules for the quantification of risks
13.4 Traditional dimension paper
13.5 Traditional estimating paper
13.6 Form of dimensions
13.7 Dimensions or quantities?
13.8 Supporting calculations
15.1 Sub-components and the principal dimensions for typical strip
foundation types
15.2 Sub-components and the principal dimensions for isolated pad
foundations
15.3 Beams connecting isolated pad foundations
15.4 Sub-components and the principal dimensions for piled foundations
15.5 Piled foundation arrangement
15.6 Measurement of underpinning
15.7 Basement
15.8 Measurement of additional excavation
15.9 Sub-components and the principal dimensions for a typical basement
retaining wall
15.10 Sub-components and the principal dimensions for a typical embedded
basement retaining wall
16.1 Sub-components and the principal dimensions for space frames and
decks
16.2 Measurement of concrete frames where attached beams narrower
than columns
16.3 Measurement of concrete frames where attached beams wider than
columns
16.4 Depth of attached beams
16.5 Measurement of upper floor comprising different forms of construction
16.6 Sub-components and the principal dimensions for a barrel vault roof
16.7 Delineation of external enclosing walls above and below ground floor
level
19.1 Measurement of the area served by the installations
23.1 Determination of unit rates for building works by interpolation
115
124
125
128
132
154
156
156
159
160
164
166
167
175
177
177
178
178
179
180
181
205
206
207
210
212
215
220
223
225
228
234
236
237
238
242
249
258
292
404
xvii
Figures
23.2
Range of analysed buildings for estimating cost targets for group

elements and elements
23.3 Plan and section pile cap
23.4 Calculation of unit rate pile cap
24.1 Composition of building works estimate
24.2 Computing the building works estimate
27.1 Composition of works cost estimate
27.2 Computing the works cost estimate
28.1 Project and design team fees estimate in the context of the cost plan
framework
28.2 Process for estimating the cost target for project and design team fees
29.1 Other development and project costs estimate in the context of the
cost plan framework
30.1 Risk allowance estimate in the context of the cost plan framework
30.2 Risk management process
30.3 Risk analysis process
30.4 Example of a typical risk register
30.5 Typical qualitative risk assessment schedule, showing calculation of
the impact score
30.6 Computing the base cost estimate
30.7 Risk response strategies
30.8 Estimating the risk allowance
31.1 Inflation estimate in the context of the cost plan framework
31.2 Calculation of inflation estimate
31.3 Calculating the cost limit exclusive of inflation
31.4 Reprofiling of inflation projection based on works packages
32.1 Cost limit in the context of the cost plan framework
32.2 Computing the cost limit inclusive of inflation
33.1 Value added tax assessment in the context of the cost plan framework
34.1 Example schedule of Items included and excluded from order of cost
estimate/cost plan
34.2 Example schedule of Transfers and adjustments since previous cost plan
34.3 Example of Schedule of value improvement opportunities/options
35.1 Tender price summary
35.2 Main contractors preliminaries summary
35.3 Main contractors preliminaries
35.4 Contract sum analysis
35.5 Provisional sums
35.6 Schedule of main contractors pre-construction services
35.7 Schedule of main contractors design fees and survey charges
35.8 Main contractors risk analysis
35.9 Schedule of option prices
35.10 Schedule of value improvement proposals
xviii
414
419
420
423
424
445
446
451
452
467
474
479
481
484
487
489
497
501
505
507
509
513
515
516
519
552
553
554
560
561
563
567
569
570
571
572
574
575
Tables
2.1 Cost-estimating, cost-planning and cost control processes in the
context of the RIBA Work Stages
2.2 Cost-estimating, cost-planning and cost control processes in the
context of the OGC Gateway Process
4.1 GIFA rules of measurement
4.2 Schedule of information required by the cost manager for the
preparation of an order of cost estimate
10.1 Cost plan 1 schedule of information required by cost manager at
RIBA Work Stage 2 (Concept Design)
RIBA Work Stage 3 (Developed Design)
RIBA Work Stage 4 (Technical Design)
19.1 Measurement of disposal installations summarised
19.2 Measurement of water installations summarised
19.3 Measurement of electrical installations summarised
23.1 Hierarchical structure of cost data
34.1 Basic rules for all types of cost estimate and cost plan report
34.2 Typical content of annexes
22
25
43
50
141
145
149
296
301
310
400
531
550
xix
Examples
4.1
5.1
9.1
11.1
11.2
11.3
12.1
14.1
14.2
14.3
14.4
14.5
14.6
14.7
14.8
14.9
14.10
15.1
15.2
15.3
15.4
15.5
15.6
15.7
xx
15.8
15.9
16.1
16.2
16.3
16.4
16.5
16.6
16.7
16.8
16.9
16.10
16.11
16.12
16.13
Calculation of total GIFA of a multifunction building

Checklist for order of cost estimates
Calculation of element unit quantities for the proposed hotel
development
Codification of cost plans
Additional code level (level 6)
Codification of components for the purposes of procurement
Cost plan checklist
Formulation of descriptions for toxic and hazardous material removal
Formulation of descriptions for contaminated land
Formulation of descriptions for eradication of plant growth
Formulation of descriptions for major demolition works
Formulation of descriptions for temporary support works
Formulation of descriptions for site dewatering and pumping
Formulation of descriptions for soil stabilisation measures
Formulation of descriptions for ground gas-venting measures
Formulation of descriptions for temporary diversion works
Formulation of descriptions for reptile and wildlife mitigation measures
Formulation of descriptions for standard foundations
Record of initial measurement and quantification of piled foundation
components
Formulation of descriptions for piled foundations
Formulation of descriptions for underpinning
Formulation of descriptions for lowest floor construction
Record of initial measurement and quantification of basement
excavation
Formulation of descriptions and computation of cost target for
basement excavation
Formulation of descriptions basement retaining walls
Formulation of descriptions for embedded basement retaining walls
Formulation of descriptions for steel frames
Formulation of descriptions for space frames and decks
Formulation of descriptions for concrete casings to steel frames
Formulation of descriptions for concrete frames
Formulation of descriptions for timber frames
Formulation of descriptions for specialist frames
Formulation of descriptions for concrete floors
Formulation of descriptions for precast and composite decking systems
Formulation of descriptions for timber floors
Formulation of descriptions for structural screeds
Formulation of descriptions for balconies
Formulation of descriptions for drainage to balconies
Formulation of descriptions for roof structures
47
59
129
158
159
161
168
188
189
191
192
194
195
196
197
197
199
207
213
213
215
217
221
222
225
229
233
234
235
239
240
240
243
244
245
245
246
246
249
Examples
16.14
16.15
16.16
16.17
16.18
16.19
16.20
16.21
16.22
16.23
16.24
16.25
16.26
16.27
16.28
16.29
16.30
16.31
16.32
16.33
16.34
17.1
17.2
17.3
17.4
17.5
17.6
18.1
18.2
18.3
18.4
19.1
19.2
19.3
19.4
19.5
19.6
19.7
19.8
19.9
19.10
19.11
19.12
19.13
19.14
19.15
Formulation of descriptions for roof coverings

Formulation of descriptions for glazed roofs
Formulation of descriptions for roof drainage
Formulation of descriptions for rooflights, skylights and openings
Formulation of descriptions for roof features
Formulation of descriptions for stair/ramp structures
Formulation of descriptions for stair/ramp finishes
Formulation of descriptions for stair/ramp balustrades and handrails
Formulation of descriptions for ladders/chutes/slides
Formulation of descriptions for external enclosing walls above ground
floor level
Formulation of descriptions for solar and rain screen cladding
Formulation of descriptions for external soffits
Formulation of descriptions for subsidiary walls, balustrades, handrails
and proprietary balconies
Formulation of descriptions for facade access/cleaning systems
Formulation of descriptions for external windows
Formulation of descriptions for external doors
Formulation of descriptions for walls and partitions
Formulation of descriptions for balustrades and handrails
Formulation of descriptions for movable room dividers
Formulation of descriptions for cubicles
Formulation of descriptions for internal doors
Formulation of descriptions for finishes to walls
Formulation of descriptions for finishes to floors
Formulation of descriptions for raised access floors
Formulation of descriptions for finishes to ceilings
Formulation of descriptions for false ceilings
Formulation of descriptions for demountable suspended ceilings
Formulation of descriptions for general fittings, furnishings and
equipment
Formulation of descriptions for domestic kitchen fittings and equipment
Formulation of descriptions for internal planting
Formulation of descriptions for bird and vermin control measures
Formulation of descriptions for sanitary appliances
Formulation of descriptions for sanitary ancillaries
Formulation of descriptions for foul drainage above ground
Formulation of descriptions for refuse disposal
Formulation of descriptions for mains water supply
Formulation of descriptions for cold water distribution
Formulation of descriptions for hot water distribution
Formulation of descriptions for local hot water distribution
Formulation of descriptions for heat sources
Formulation of descriptions for central heating
Formulation of descriptions for central air conditioning
Formulation of descriptions for local and special ventilation
Formulation of descriptions for electrical mains and sub-mains
distribution
Formulation of descriptions for power installations
Formulation of descriptions for lighting installations
251
252
252
253
254
255
256
256
257
259
261
262
263
263
265
266
267
268
269
270
271
275
277
278
279
281
282
284
286
288
289
293
294
298
300
302
303
303
304
305
306
308
309
311
312
313
xxi
Examples
19.16
19.17
19.18
19.19
19.20
19.21
19.22
19.23
19.24
19.25
19.26
19.27
19.28
19.29
19.30
20.1
20.2
20.3
21.1
21.2
21.3
21.4
21.5
21.6
22.1
22.2
22.3
22.4
22.5
22.6
22.7
22.8
22.9
22.10
22.11
22.12
22.13
22.14
22.15
22.16
22.17
22.18
22.19
22.20
22.21
xxii
22.22
Formulation of descriptions for specialist lighting installations

Formulation of descriptions for local electricity generation systems
Formulation of descriptions for earthing and bonding systems
Formulation of descriptions for fuel distribution systems
Formulation of descriptions for lifts and enclosed hoists
Formulation of descriptions for escalators
Formulation of descriptions for moving pavements
Formulation of descriptions for fire-fighting systems
Formulation of descriptions for fire suppression systems
Formulation of descriptions for communication systems
Formulation of descriptions for security systems
Formulation of descriptions for central control/building management
systems
Formulation of descriptions for specialist mechanical installations
Formulation of descriptions for water features
Calculation of cost target for builders work in connection with services
Formulation of descriptions for complete buildings
Formulation of descriptions for building units
Formulation of descriptions for pods
Formulation of descriptions for minor demolition works and alteration
works
Formulation of descriptions for repairs to existing services
Formulation of descriptions for damp-proof courses
Formulation of descriptions for fungus and beetle eradication
Formulation of descriptions for facade retention
Formulation of descriptions for masonry repairs
Formulation of descriptions for site clearance
Formulation of descriptions for preparatory groundworks
Formulation of descriptions for roads, paths and pavings
Formulation of descriptions for special surfacings and pavings
Formulation of descriptions for seeding and turfing
Formulation of descriptions for external planting
Formulation of descriptions for irrigation systems
Formulation of descriptions for fencing and railings
Formulation of descriptions for walls and screens
Formulation of descriptions for retaining walls
Formulation of descriptions for barriers and guardrails
Formulation of descriptions for site/street furniture and equipment
Formulation of descriptions for surface water and foul water drainage
Formulation of descriptions for ancillary drainage systems
Formulation of descriptions for land drainage
Formulation of descriptions for water mains supply
Formulation of descriptions for electricity mains supply
Formulation of descriptions for external transformation devices
Formulation of descriptions for gas mains supply
Formulation of descriptions for telecommunications and other
communication connections
Formulation of descriptions for external fuel storage and piped
distribution systems
Formulation of descriptions for external security systems
314
315
316
318
320
321
322
325
325
327
328
329
330
332
333
336
338
340
343
345
348
348
349
351
357
359
361
362
363
366
367
369
369
370
371
372
376
377
379
381
383
383
385
385
387
388
Examples
22.23 Formulation of descriptions for external street lighting systems

22.24 Formulation of descriptions and calculation of cost for builders work
in connection with external services (where same single percentage is
to be applied to all types of services installations)
22.25 Formulation of descriptions and calculation of cost for builders
work in connection with external services (where either separate
cost targets are required for each service installation or different
percentages are applicable to each type of services installation)
22.26 Formulation of descriptions for minor building works
22.27 Formulation of descriptions for ancillary buildings and structures
23.1 Time adjustment of cost/m of GIFA using time-based indices
23.2 Regional adjustment using regional variation factors
23.3 Adjustment of cost/m of GIFA for other cost factors
23.4 Adjustment of cost/m of GIFA for other cost factors multiple
23.5 Specification adjustment of cost/m of GIFA
23.6 Calculating the cost/m of GIFA for proposed new building
23.7 Calculating initial cost targets for group elements and elements
23.8 Calculating element unit rates
25.1 Calculation of cost target for main contractors preliminaries
25.2 Initial apportionment of cost target for main contractors preliminaries
25.3 Checking adequacy of cost target for project-specific management and
staff
25.4 Checking adequacy of cost target for tower crane
25.5 Checking adequacy of cost target for hoardings
26.1 Calculation of cost target for main contractors overheads and profit
26.2 Calculation of separate cost targets for main contractors overheads
and main contractors profit
28.1 Calculation of initial cost target for consultants fees based on a
percentage
28.2 Detailed build-up of cost target for consultants fees
28.3 Calculation of cost target for main contractors pre-construction fee
28.4 Calculation of cost target for main contractors design fees
28.5 Calculation of cost target for project and design team fees where a
designer-led design strategy to be used (i.e. where employer directly
employs all consultants)
28.6 Calculation of cost target for project and design team fees where
contractor-led design strategy is to be used (i.e. where employer
novates certain consultants to the contractor)
30.1 Quantifying the risk allowance based on a percentage of the base cost
estimate
30.2 Quantifying the risk allowance using the basic simple method of
assessment
30.3 Quantifying the risk allowance using the enhanced simple method of
assessment
30.4 Quantifying the risk allowance using probabilistic analysis for tasks
30.5 Quantifying the risk allowance using probabilistic analysis for unit rates
30.6 Construction risk allowance estimate summary
30.7 Sensitivity analysis of the effect of changes to the rate of inflation
30.8 Risk allowance estimate summary
31.1 Tender inflation estimate
389
392
394
396
396
405
407
408
408
410
411
415
417
433
435
436
437
438
443
443
453
455
459
462
465
465
489
491
492
494
494
494
495
502
509
xxiii
Examples
31.2
31.3
33.1
34.1
34.2
34.3
34.4
34.5
34.6
34.7
34.8
34.9
34.10
34.11
34.12
34.13
34.14
34.15
34.16
34.17
34.18
34.19
34.20
34.21
34.22
34.23
xxiv
Construction inflation estimate

Inflation estimate
VAT assessment
Cover page for a cost plan report
Executive summary for a cost plan report
Contents page for a cost report, showing the main headings only
Introduction for a cost plan report
Brief project description
Basis of the cost plan
Estimate base date statement
Procurement strategy statement
Programme statement
Information statement
Statement about gross internal floor areas
Statement about building works
Statement about unit rates
Statement about main contractors preliminaries
Statement about main contractors overheads and profit
Statement about project and design team fees
Statement about other development and project costs
Statement about risk allowances
Statement about inflation
Statement about VAT
Statement about other considerations
Cost plan summary
Conclusions and recommendations
511
512
522
534
535
536
537
537
538
538
539
539
540
541
541
543
543
543
544
544
545
546
546
547
547
549
Foreword Sean Tompkins

Sean Tompkins, Chief Executive Officer of the Royal Institution of Chartered
Surveyors
On behalf of the Royal Institution of Chartered Surveyors, I am delighted to
introduce the NRM 1 Cost Management Handbook. David has masterfully created a
user-friendly accompaniment to the NRM 1 standard for measuring capital building
works for the purpose of cost planning that speaks in a contemporary language and
style to articulate a skill set that has been developed over generations.
This handbook, used in conjunction with the NRM (RICS New Rules of
Measurement) suite will raise professional standards of quantity surveying and cost
management, adding greater value to clients and improving client confidence in the
process.
I am grateful that David has acknowledged how NRM 1 can be used as an
integrated tool with building information modelling (BIM) enabled projects; this will
help place quantity surveyors and cost managers at the heart of construction projects
right where they should be.
This handbook will also support cost managers in setting realistic elemental cost
targets so that design teams can design to cost and not cost the design, which is
particularly apposite given the current UK governments construction strategy that
calls for project teams to know what projects should cost rather than did cost.
The NRM 1 Cost Management Handbook will help instil this new paradigm of cost
management and drive this imperative forward.
Overall this book will be an excellent addition to any quantity surveyors or cost
managers library, and I fully support the publication of the NRM 1 Cost Management
Handbook.
xxv
Foreword Richard Steer

Richard Steer, Chairman of Gleeds, International Management & Construction
Consultants
The NRM 1 Cost Management Handbook is a must have for all quantity surveyors and
cost managers working in todays fast moving environment. The handbook has been
created as an accessible accompaniment to the NRM 1 standard for measuring capital
building works for the purpose of cost planning, and it communicates in a manner
and style that works at all levels. Whilst appropriate for the current generation
of construction management professionals, David has ingeniously drawn on the
knowledge and background that would be familiar to quantity surveyors from earlier
generations but has given the book a contemporary feel.
The book highlights the importance of measurement in cost management today
and furthermore shows the need for colleges and universities to embrace and teach
measurement.
On initial review, NRM 1 may appear highly detailed but when cost managers
begin to reflect on how the guidance is structured and how each section can be
meaningfully applied, I am convinced it will soon become a respected best practice
tool, supporting day-to-day cost estimating and cost planning activities.
What David has cleverly shown is that professional cost management does not
simply consist of a series of measurement rules. The NRM 1 provides a toolkit for the
cost management of construction projects embracing and exemplifying best practice
which will help the reader in developing a professional reputation from both an
individual and corporate perspective.
It is a strength of the book that David does not just focus on best practice in
the modern workplace but he also highlights the common pitfalls and advises
how to avoid them. Forewarned is forearmed and it is this practical rather than
purely theoretical approach that gives the book such value. I therefore thoroughly
recommend this valued work, as the guidance provided by David in the NRM 1 Cost
Management Handbook has been clearly stated and is accessible to all levels.
xxvii
Foreword Stuart Earl

Stuart Earl BA(Hons) BSc(Hons) FRICS, Chairman of RICS Measurement
Initiative Steering Group and Director of Gleeds Cost Management Limited
On 24 April 2012, the RICS launched its landmark measurement initiative, the New
Rules of Measurement (NRM). The rules are arguably the most significant launch to
the construction sector by the RICS in the past 35 years.
Before NRM, the RICS had provided quantity surveyors with rules for the
measurement of building works the Standard Method of Measurement (SMM).
However, these rules were specifically drafted to advise quantity surveyors of how to
measure building works in detail for inclusion in bill of quantities that, in turn, were
used to obtain tender prices from contractors; they also aided the measurement and
valuation of variations issued during the construction phase. A key requirement of
the SMM was the need for a full and detailed specification and drawings from the
designers which were and are now seldom provided. This resulted in the overuse of
provisional sums and abuse of the use of bill of quantities. The lack of detailed design
is primarily caused by the cost of finance and the need for clients to complete and
put the building to use as quickly as possible, as well as the impetus to get contractors
involved early in the design process to provide input on design, buildability and value
for money.
As a consequence, over the past 20 years, the use of design and build contract
strategies have come to the forefront; with contracts commonly being awarded based
on Concept Design or Developed Design (RIBA Work Stages 2 or 3). Well before
the completion of Technical Design (RIBA Work Stage 4), at which stage the use
bill of quantities could be considered. For these reasons, cost planning has become an
essential cost management tool.
NRM 1 (the RICS New rules of measurement: Order of cost estimating and cost
planning of capital building works) is an overdue statement of how cost planning
is applied in practice and is a significant step forward in improving professional
standards. Firstly, it re-establishes measurement as the focus of our professional
standing and secondly, it makes it easier to benchmark our cost planning procedures
against those which are widely accepted as best practice. It also provides learning
establishments with a much clearer statement of the cost planning competencies
required by students.
Moreover, NRM 1 presents a clear framework, which facilitates a systematic
approach to compiling and managing cost estimates and cost plans. In this NRM 1
Cost Management Handbook, David has successfully augmented the rules and provides
clear sound advice on how to use the tools that can be found ensconced in them. He
must be congratulated for this work.
I am also pleased to see that David has used the in this NRM 1 Cost Management
Handbook to bring NRM 1 into line with the latest RIBA Plan of Work (i.e. RIBA
Plan of Work 2013).
For those practitioners who have yet to implement the best practice guidance
provided by NRM 1, and those who want to be more informed about it, I am certain
xxix
Foreword
that Davids NRM 1 Cost Management Handbook will be seen as an indispensable aid
that greatly assists you in moving forward to embrace best practices in cost estimating
and cost planning. Furthermore, understanding and using NRM 1 will be an essential
selling point when working in other countries, helping to avoid misunderstandings
that often arise due to different countries.
Learning and adopting best practice is essential.
xxx
Preface
As part of its commitment to continually raising the standards that its members
work to, the RICS launched the RICS New rules of measurement: Order of cost
estimating and cost planning for capital building works now commonly called NRM 1.
RICS standards are recognised across the globe as the best technical practice in
construction.
There has never been a more pressing time to introduce NRM 1. The reforms
set out in the UK governments Construction Strategy, as well as the UKs chief
construction advisers efficiency agenda, the increasing focus on building information
modelling (BIM) and the economic challenges that face the construction industry
at the present time, all demand a step change in working culture including the
working culture of the cost manager.
The relevance of NRM 1 within a BIM-enabled construction industry is
particularly pertinent. BIM is intended to address issues of process management and
data retention, bringing the collection of co-ordinated data to the forefront. NRM 1
is linked to this, enabling the consistent collection of construction cost data that is
synchronised with the design data as is NRM 3, in respect of building maintenance
cost data.
NRM 1 represents the essentials of best practice and forms the cornerstone of
good cost management of construction projects. The rules provide a standard of
measuring for the purpose of developing order of cost estimates and cost plans,
and enable effective, accurate and transparent cost advice to be given. They also
facilitate better pre- and post-contract cost control. Consequently, NRM 1 sets
out the standards required that cost managers, contractors and any others should
follow.
It is important to understand that NRM 1 is a toolkit for cost management, not
just a set of rules for the quantification of capital building works. Along with other
advice, the rules provide guidance on:
How the method of measurement changes as the design of a building project develops
from high-level measurement of areas and/or functional units to the measurement
of more detailed elements, sub-elements and cost-significant components.
Total project fees considering fees in connection with consultancy services
from cost managers, architects, engineers and legal advisers, as well as those in
connection with site surveys both desktop and intrusive investigations in
addition to main contractors pre-construction fees and main contractors and
subcontractors design fees.
Total building project costs how all cost centres, including non-construction items,
relating to the building project can be considered and pulled together into a single
cost plan for the entire building project.
Risk based on the properly considered assessment of dealing with risks
should they materialise dispensing with the widely mismanaged concept of
contingences.
xxxi
Preface
Information requirements what information is required by the cost manager from

the employer and other project team members at each design stage to enable more
certainty in their cost advice.
Key decisions that the client needs to make at each Work Stage of the RIBA Plan
of Work, or OGC Gateway.
Codification providing a framework for codifying elements, sub-elements and
components so that structure of cost plans can be converted from elemental to
work package, and vice versa, to facilitate the management of costs through both
the bid and construction phases of a building project.
Reporting providing advice on communicating cost advice to clients.
Data collection providing a common basis for analysing and collecting real-time
cost data that can be used for benchmarking and to estimate the cost of future
building projects.
To be effective, a cost manager must be able to understand and use the rules
of measurement, as well as being able to apply common sense. In contrast, an
effective project manager must have an understanding of how cost managers
construct their cost estimates and cost plans to be able to discuss from a position
of knowledge.
Use of the rules by cost managers demonstrates a professional and responsible
approach to the cost management of building projects. Moreover, it is beneficial to
project managers, clients and others involved in financial management who wish to
better understand the cost management of building projects.
I hope that this NRM 1 Cost Management Handbook will help that understanding.
David P. Benge
About this handbook

My aim in writing this handbook has been to provide a text which is practical
enough to be useful to practitioners but which also has enough academic content to
meet the requirements of degree courses.
The handbook is designed to take the reader step-by-step though the latest RICS
best practice guidance (NRM 1) on preparing and communicating cost estimates
and cost plans for capital building projects. In addition to showing how NRM 1 is to
be interpreted and used, the handbook provides sound practical advice on the cost
management of building projects, as well as on the pitfalls to be avoided.
The unique features of this handbook are:
Style of writing
The language used in this handbook is lucid, easy to understand and facilitates
easy grasp of concepts.
The chapters have been logically arranged in sequence.
The handbook is written in a reader-friendly manner both for students and
practitioners.
Explanations are supported by diagrams wherever required.
xxxii
Preface
Content of the handbook theory

The handbook explains how to use and apply the principles of measurement and
the tools advocated by NRM 1.
Sufficient worked examples have been included to reinforce understanding.
Content of the handbook practical

In addition to explaining how to use and apply the principles of NRM 1, the
theory is supported by practical information on the quantification of building
works, as well as discussion on the pitfalls to be avoided when preparing cost
estimates and cost plans.
Certain chapters include templates that can be adopted and amended for practical
use.
Targeted readership
This handbook has been written keeping in mind both students and practitioners
who wish to acquire a practical understanding of the RICS New rules of measurement:
Order of cost estimating and elemental cost planning (NRM 1) quickly.
Although primarily written for a UK audience, the handbook provides essential
guidance for students and practitioners worldwide the principles and tools within
NRM 1 apply in whichever country you are situated.
This handbook is well suited for students studying HNC/D, BSc degrees and MSc
degrees in:
cost management;
quantity surveying;
project management;
commercial management;
construction management;
construction procurement management;
building surveying.
It is essential reading for any graduate embarking on the RICS Assessment of

Professional Competence (APC).
Structure of the handbook

This handbook is divided into the following seven parts:
Part 1 (Introduction) comprises two chapters: Chapter 1 describes the basic
principles and importance of cost management, outlines the role of the cost
manager, explains the purpose and benefits of NRM 1 and its relationship
with NRM 2 and NRM 3, explains how NRM 1 is integral to Building
Information Management (BIM) and describes the cost management cycle;
and Chapter 2 considers the composition of cost estimates and cost plans,
defines the relationship between NRM 1 and the RIBA Work Stages and
OGC Gateways, describes the formal cost-estimating stages, considers the
xxxiii
Preface
impact of procurement and contract strategies on the cost-planning process

and identifies the responsibilities of the project team in the cost-planning
process.
Part 2 (Order of cost estimates) comprises seven chapters. Chapter 3 explains
the purpose of order of cost estimates; Chapter 4 describes the planning of
an order of cost estimate and sets out the information required by the cost
manager to provide more cost certainty at an early stage; Chapters 5 and 6
provide step-by-step guidance on preparing an order of cost estimate; Chapter
7 provides a worked example of an order of cost estimate using a real building
project; Chapter 8 explains the purpose of the elemental method of estimating
and shows how to prepare an initial elemental cost model using the elemental
method of estimating; and Chapter 9 provides step-by-step guidance on how
to generate element unit quantities and pull together a elemental cost model.
Part 3 (Cost planning) comprises 18 chapters: Chapter 10 explains the concepts
and objectives of cost planning, describes the different types of cost plans
and sets out the information required by the cost manager at each RIBA
Work Stage and OGC Gateway to provide more cost certainty; Chapter 11
describes the format, structure and codification of cost plans; Chapter 12
gives step-by-step guidance on preparing a cost plan; Chapter 13 shows how
to use the tabulated rules within NRM 1, defines and distinguishes between
prime cost sums and provisional sums, considers the pitfalls to be avoided
when recording dimensions and quantities ascertained when using electronic
measuring devices, provides guidance on quantification and the formulation
of component descriptions, and advises on how to quantify and describe
components for which there is inadequate design information; Chapters 14
to 22 provide step-by-step guidance on how to measure and describe the
components with each element and sub-element, giving examples of how to
formulate descriptions for components; Chapter 23 illustrates the hierarchical
structure of cost data, considers the pitfalls associated with in-house and
published cost data, and provides worked examples on how to determine
unit rates for components; Chapter 24 shows how to calculate the building
works estimate; Chapter 25 defines the items that constitute main contractors
preliminaries, explains how to deal with subcontractors preliminaries,
considers factors that can significantly influence the cost of main contractors
preliminaries, describes how to calculate main contractors and subcontractors
preliminaries, and provides worked examples on cost checking the adequacy
of main contractors preliminaries; Chapter 26 defines and shows how to
calculate both the main contractors and subcontractors overheads and profit;
and Chapter 27 explains how to calculate the works cost estimate.
xxxiv
Part 4 (Estimating cost targets for non-building works items and risk allowances)
comprises six chapters: Chapter 28 describes the categories of project and
design team fees in a building project, provides step-by-step guidance on
estimating fees, together with worked examples, and explains how to deal
with main contractor and subcontractor design fees; Chapter 29 defines and
explains the approach to estimating other development and project costs;
Chapter 30 discusses the risk management of building projects and provides
guidance on the setting and managing of risk allowances; Chapter 31 defines
the concept of inflation, illustrates how inflation is dealt with in the context
of building projects and gives guidance on estimating the possible effects of
Preface
inflation; Chapter 32 provides step-by-step guidance on how to establish the

cost limit; and Chapter 33 discusses the different types of taxes and incentives
applicable to building projects.
Part 5 (Writing cost estimate and cost plan reports) comprises one chapter: Chapter
34 provides guidance on the writing of cost estimate and cost plan reports
using a progressive worked example, and discusses how to communicate the
cost estimate or cost plan to the employer and other stakeholders.
Part 6 (Designing pricing documents using NRM 1) comprises one chapter: Chapter
35 explains how the NRM 1 framework can be used to formulate a pricing
document, together with worked examples.
Part 7 (Analysing bids and collecting data using NRM 1) comprises one chapter:
Chapter 36 discusses the impact that changing procurement strategies have
had on the ability of the cost manager to collect and analyse cost data for use
in future building projects, illustrates the problems with collecting historical
cost data, explains how the NRM 1 framework can be used for collecting and
analysing historical cost data and considers the way in which benchmarking is
used by cost managers.
Learning aids
The book aims to help readers to understand how order of cost estimates and cost
plans are prepared in the real world. To assist with this aim I have incorporated a
number of learning aids:
chapter opening summaries providing a list of key points covered by each chapter;
headings and sub-headings to break up material into clearly defined topics, giving
readers quick access to the topics they need;
diagrams to clearly illustrate the overall logic of the rules;
tables to present certain information in an easy-to-read format, as well as to
support real-time management of cost estimates and cost plans;
process maps to provide step-by-step guidance on preparing cost estimates and cost
plans;
flow charts to illustrate work flows;
worked examples using real-time project information;
templates for use in practice;
cross-referencing to enable the reader to refer to applicable sub-sections or
definitions; and
definitions of key terms and phrases used in each chapter.
xxxv
Acknowledgements
I should like to thank the various people who have helped to bring this book to
completion. First of all, Stuart Earl (Chair), Joe Martin (Executive Director of
BCIS) and the other members of the RICS Measurement Initiative Steering Group
for having the confidence in entrusting me with the writing of RICS New rules of
measurement: Order of cost estimating and cost planning for capital building works (now
commonly referred to as NRM 1). Second, I must acknowledge the helpful comments
of my colleagues at Gleeds, who reviewed parts of the book as it was written; I hope
that they will recognise the effects of their comments in the final result. Third, I must
thank Bryan Avery, of Avery Associate Architects, for kindly allowing me to use his
drawings to illustrate the use of NRM 1. Last but not least, my long-suffering and
patient family Gillian, Tim, Rebecca and Chris. To all those other people that I
have forgotten, my apologies.
xxxvii
About the author

David P Benge BSc, MSc, FRICS, MACostE is a Fellow of the Royal Institution of
Chartered Surveyors (RICS) with over 30 years experience as a quantity surveyor and
educator. As Head of Quality Management at Gleeds, International Management
and Construction Consultants, David focuses on service improvement for all aspects
of quantity surveying and project management activities with a worldwide remit.
David holds a BSc Degree in Quantity Surveying and an MSc Degree in
Construction Procurement, obtained from South Bank Polytechnic (now University)
and Nottingham Trent University, respectively.
He became a Member of the RICS in 1986 and a Member of the Association of
Cost Engineers in 1988. He was made an Honouree Fellow in 2012 at the personal
invitation of the RICS Chief Executive and the Chairman of the Quantity Surveying
and Construction Professional Group.
His career spans both the private and public sectors, in almost equal periods, from
which he draws his significant experience.
His research interests include the quality of service delivery in cost management
and construction procurement management.
David authored both the first and second editions of the RICS New rules of
measurement: Order of cost estimating and cost planning for capital building works
(referred to as NRM 1), which is an RICS best practice publication and the first
edition became effective on 1 May 2009. He also co-authored NRM 2 (the RICS
New rules of measurement: Detailed measurement for building works) and NRM 3
(the RICS New rules of measurement: Order of cost estimating and cost planning for
building maintenance works).
He lives in St Leonards-on-Sea, East Sussex with his wife Gillian. They have three
grown-up children - Tim, Rebecca and Chris - who have absolutely no interest in
either quantity surveying or cost management!
Through Gleeds, David provides quality consulting services and training on the
use and application of the NRM suite of measurement rules. He can be reached at
david.benge@gleeds.co.uk.
xxxix
Abbreviations
ACMs
BCIS
BIM
BMU
BQ
BREEAM
CAD
CBS
CDP
CFA
CFP
CHP
CO2
cost/m
DDA
DPM
EU
EUQ
EUR
FF&E
GEA
GIA
GIFA
GL
ha
HSE
HV
IPT
IT
JCT
kg
kN
KPI
kW
LPG
LV
m
m
m
mm
m/sec
M&E
MoD
asbestos-containing materials
Building Cost Information Service
building information modelling
building maintenance unit
bill of quantities
Building Research Establishment Environmental Assessment Method
computer aided design
cost breakdown structure
Contractors Design Portion
continuous flight auger
cased flight auger piles
combined heat and power
carbon dioxide
cost per square metre
Disability Discrimination Act
damp-proof membrane
European Union
element unit quantities
element unit rate
fittings, furnishings and equipment
gross external area
gross internal area (synonymous with GIFA)
gross internal floor area (synonymous with GIA)
ground level
hectare(s)
Health and Safety Executive
high-voltage
insurance premium tax
information technology
Jaint Contracts Tribunal
kilogram(s)
kilonewton
key performance indicator
kilowatt(s)
liquefied petroleum gas
low-voltage
metre(s)
square metre(s)
cubic metre(s)
millimetre(s)
metres per second
mechanical and electrical
Ministry of Defence
xli
Abbreviations
NHBC
NIA
nr
NRM
OGC
QMS
PC
PCSA
RIBA
RICS
RVF
SA
SFCA
SMM7
SRO
SUDS
t
TCM
TPI
UK
UPS
VAT
VAV
VE
VM
VfM
VRV
WBS
WPC
GBP
xlii
National House-Building Council

net internal area
number
new rules of measurement
Office of Government Commerce
quality management system
prime cost
Pre-Construction Services Agreements
Royal Institute of British Architects
Royal Institution of Chartered Surveyors
regional variation factors
site area
Standard Form of Cost Analysis
Standard Method of Measurement
Senior Responsible Owner
sustainable urban drainage schemes
tonne(s)
total cost management
tender price index
United Kingdom
uninterrupted power supply
value added tax
variable air volume
value engineering
value management
value for money
variable refrigerant volume
work breakdown structure
Working Platform Certificate
pound (sterling)
PART
Introduction
CH A P TE R
Cost management
Introduction
This chapter:
defines cost management in the context of building projects;

describes the basic principles of cost management;
explains the importance of cost management;
identifies the objectives of cost management;
outlines the role of the cost manager;
describes the cost management cycle phases along with the activities needed to
complete them;
explains the role that the RICS [Royal Institution of Chartered Surveyors] New
Rules of Measurement: Order of Cost Estimating and Cost Planning for Capital
Building Works (NRM 1) has in effective cost management;
explains the relationship of the documents that comprise the RICS suite of new
measurement rules;
explains how NRM 1 supports building information modelling (BIM); and
summarises the key benefits of the rules.
1.1 What is cost management?

Cost management is all about achieving value for money (VfM). It is much
more than simply maintaining records of expenditure and issuing cost reports.
Management means control, so cost management means all those actions
necessary to understand why costs occur and the necessary responses so
that decisions controlling costs are taken promptly in light of all relevant
information.
In the context of building projects, cost management involves the overall
planning, co-ordination, control and reporting of all cost-related aspects from
initiation to operation and maintenance. It is the process of identifying all costs
associated with the investment, making informed choices about the options
that will deliver best value for money and managing those costs, including
costs throughout the life of the building, where whole life costs are being
considered.
Cost management
Cost management of building projects is just one of the specialist services

undertaken by the quantity surveyor.
1.2 Basic principles of cost management

Cost management is one of the cornerstones of project management. The
establishment and implementation of effective cost management procedures at
an early stage in the development of a building project will help ensure success.
Established and effective cost control systems and procedures, understood
and adopted by all members of the project team, entail less effort than crisis
management and will release management effort to other areas of the building
project.
The principle areas of cost management can be described as follows:
Scope defining what is to be included within the building project and limiting
expenditure accordingly.
Programme defining the programme for the building project from inception to
completion and ensuring compliance. Estimates and cash flow projections should
be consistent with the programme.
Design ensuring that designs meet the scope and budget (i.e. cost limit);
delivering quality that is appropriate to the employers brief.
Risk allowances ensuring that all monies are appropriately allocated from risk
allowances and are properly authorised. Monitoring the use of risk allowances to
forecast the cost limit.
Contracts and materials ensuring that the contracts provide full and proper
control and that all costs are incurred as authorised; ensuring that materials
are properly specified so as to meet the scope and design, and that they can be
procured effectively.
Cash flow planning and controlling both commitments and expenditure within
budgets so that unexpected cost overruns or underruns do not occur.
Cost records and reports ensuring that all transactions are properly recorded
and authorised and, where appropriate, decisions are justified; and that regular,
consistent and accurate reports are available to the employer.
It must be emphasised that cost management procedures need to be varied and
flexible. Cost managers should discuss and jointly agree appropriate controls
and review mechanisms with the employer and, where appointed, the project
manager.
1.3 Why is cost management important?
Cost management is an essential part of effective programme/project management,

but when poorly performed can be a barrier to the successful delivery of the
building project and can result in failure to achieve value for money. Cost overruns
are often caused by the employer through objectives that are unclear and changed
during the course of the building project. The other main reasons for cost increases
are:
Cost management
unrealistic cost estimates (usually too optimistic);

risk allocation that is ambiguous; and
inadequate management control.
In building projects, additional problems are frequently caused by:
design that does not meet planning or statutory requirements;
design that lacks co-ordination; and
design that is difficult to build and maintain.
1.4 Objectives of cost management

The objectives of cost management are:
to deliver the building project at the lowest cost compatible with the specified
quality and as closely as practicable to the cost limit (taking account of whole life
costs, where appropriate);
to ensure that, throughout the building project, full and proper accounts are
maintained (and kept up to date at all times) of all transactions including
commitments, payments and changes; and
to ensure that all transactions fully accord with the requirements of the employer
or, in the case of public sector organisations, with the requirements of public
accountability, probity and propriety.
1.5 Responsibility for cost management

The cost management of a building project is the joint responsibility of the whole
project team; not the cost manager alone. Cost management requires continuing
and active involvement from all project team members. Therefore, all project team
members must remain mindful of their joint responsibility for cost management and
draw to the attention of the employer, or project manager, anything that might affect
cost. In view of this, it is important that the employer clearly sets out each consultants
responsibility in respect of cost management in the consultants appointment.
1.6 The role of the cost manager

Management of the overall cost of the building project is the responsibility of the
cost manager, maintaining effective financial control through the processes of
evaluating, estimating, budgeting, monitoring, analysing, forecasting and reporting.
The main tasks of the cost manager are to:
provide initial cost advice on capital investment costs;

produce cost estimates and cost plans in respect of capital investment costs;
advise on and estimate whole life costs;
produce risk allowance estimates;
manage the base cost estimate and risk allowance during design development and
construction;
Cost management
undertake cost-in-use studies and option costs;

produce cost reports, estimates and forecasts;
maintain an up-to-date estimated outturn cost and cash flow;
manage expenditure of the risk allowance;
initiate action to avoid overspend;
prepare pricing documents for the purpose of tender;
evaluate tender bids;
scrutinise actual cost of tenders;
collect and analyse cost data;
prepare interim valuations;
value change instructions;
ascertain cost implication of contractors financial claims;
negotiate and agree final accounts; and
issue financial reports or statements (i.e. throughout the building project to report
the financial status).
1.7 The cost management cycle (the Benge Cycle)

The cost management cycle is shown in Figure 1.1. Proactive cost management
takes place throughout the cost management cycle (the Benge Cycle). Each cost
management cycle phase is described below, along with the activities needed to
complete it.
Where required, whole life costs will be considered during each phase of the cost
management cycle.
1.8 Relationship of the documents that comprise

the RICS suite of new measurement rules
NRM 1 forms part of the RICS suite of publications referred to as the new rules of
measurement (NRM). The RICS Quantity Surveying and Construction Group have
developed the NRM suite of documents. The primary aim of the rules is to provide a
consistent approach to the measurement and quantification of capital building works
and maintenance, supported by a common means of analysing cost data for future use.
Although the NRM suite has principally been based on UK practice, the
requirements for a co-ordinated set of rules and their underlying philosophy have
worldwide application.
The NRM suite comprises the following three volumes (summarised in Figure 1.2):
NRM 1 Order of cost estimating and cost planning for capital building works;
NRM 2 Detailed measurement for building works; and
NRM 3 Order of cost estimating and cost planning for building maintenance
works.
These rules are supported by the BCIS (Building Cost Information Service)
Elemental Standard Form of Cost Analysis, (NRM) Edition, which sets out
Cost management
Determining viability
of options
Cost data retrieval

and reprocessing
Setting cost limit for

preferred option
Analysis, collection
and storage of
actual cost data
Cost control of
design development
Cost control of
procurement and
construction stages
Figure 1.1 The cost management cycle (the Benge Cycle)
Notes:
(1) Determining viability of options preparing order of cost estimates for one or more building or
development options to establish the likely cost and determine the viability and affordability of each option
(2) Setting cost limit for preferred option establishing the maximum expenditure that the employer is
prepared to make in relation to the completed building or development (i.e. the cost limit)
(3) Cost control of design development determining cost targets for key elements of the building project
through cost planning the design, including cost checking and value engineering the developing design
to ensure the projected outturn cost remains within the cost limit set by the employer
(4) Cost control of procurement and construction stages preparing pre-tender estimates (derived from the
latest cost plan) to predict tender prices; reconciling tender prices against pre-tender estimates and cost
plans; establishing contract sums; managing and reporting costs during the construction phases of the
building project to ensure the projected outturn cost remains within the cost limit set by the employer;
negotiating and agreeing final accounts
(5) Analysis, collection and storage of actual cost data planning for, obtaining, analysing, collecting and
storing real-time cost data from building projects, including discrete works packages and trade packages,
which can be retrieved and reprocessed for use in future order of cost estimates and cost plans
(6) Cost data retrieval and reprocessing retrieving and reprocessing cost data obtained from previous
building projects for use in future order of cost estimates and cost plans
the principles of analysing building costs. Together, these rules deal with the
quantification of buildings from cradle to grave from inception to demolition.
1.8.1 NRM 1 Order of cost estimating and cost

planning for capital building works
NRM 1 provides essential guidance on the quantification of building works for the
purpose of preparing cost estimates and cost plans. The rules provide direction on
how to quantify other items that form part of the total cost of a construction project,
Cost management
NRM 1
NRM 3
Order of Cost
Estimating
Order of Cost
Estimating
Whole Life Cost Estimating/Cost Planning
Cost Planning
Cost Planning
Cost of Capital Building Works

Initial capital costs of building
(new build and refurbishment)
Cost of Maintenance Works

NRM 2
Replacement costs
(of sub-elements and components)
Disposal costs
Planned/Preventative maintenance costs

(of building components and building
engineering services)
Unplanned maintenance costs
Detailed
Measurement
Replacement of components and

sub-components
Emergency works
Detailed measurement for the

purpose of obtaining bids for
capital building works
(new build and refurbishment)
Disposal costs in connection with

components and sub-components
Figure 1.2 Relationship and purpose of the RICS NRM suite of measurement rules
but which are not reflected in the measurable building work items (e.g. preliminaries,
overheads and profit, project team and design team fees, risk allowances, inflation,
and other development and project costs). Additionally, the rules can be used as a
basis for capturing historical cost data in the form required for use in future order
of cost estimates and cost plans, thereby completing the cost management cycle.
NRM 1 provides not only a uniform basis for measuring building works and other
items but also embodies the essentials of best practice.
NRM 1 provides the cornerstone of good cost management of capital building
projects by enabling cost managers to give more effective, accurate and transparent
cost advice to employers and other project team members, as well as facilitating
better cost control. More importantly, it aids the cost manager to ensure that capital
building projects are designed to an agreed cost, rather than allowing designers to set
the costs based on their designs.
Although written primarily for the preparation of order of cost estimates and
cost plans, the rules can also be used as a guide when preparing approximate
estimates, including those for relatively low-value building projects. In addition,
they can be used to quantify replacement components (e.g. replacement windows),
building maintenance items (e.g. redecoration) and demolition works for the
purpose of whole life cycle cost (or value) assessments. However, they do not
deal with the maintenance and operation of mechanical and electrical services
installation or other works and services carried out throughout the life cycle of a
building.
Cost management
1.8.2 NRM 2 Detailed measurement for building

works
NRM 2 became effective on 1 July 2013, thereby substituting the seventh edition of
the Standard Method of Measurement (SMM7), the first edition of which had been
published in 1921.
Like its predecessor, NRM 2 provides guidance on the detailed measurement
and description of building works for the sole purpose of obtaining prices from
contractors. These rules address all aspects of bill of quantities (BQs) production,
including setting out the information required from the employer and other
construction consultants to enable the preparation of a BQ, as well as dealing
with the quantification of non-measurable work items, contractor-designed works
(sometimes referred to as Contractors Design Portion (CDP)) and the transference
of risks to the contractor. NRM 2 covers the full range of possible building works
activities, breaking these down into 41 work sections.
While written primarily for the preparation of BQs, quantified schedules of works
and quantified work schedules, NRM 2 provide a basis for designing and developing
both standard and in-house schedules of rates.
1.8.3 NRM 3 Order of cost estimating and cost

planning for building maintenance works
NRM 3, although not published at the time of writing this book, provides guidance
on the quantification of maintenance works for the purpose of preparing order of cost
estimates for building maintenance works during the strategic or business justification
stages of a capital building project, and cost plans for building maintenance works
during the design and development stages of a capital building project. NRM 3
can also be used in preparing asset-specific cost plans and life cycle cost plans for
existing buildings and facilities (i.e. for setting budgets and for procuring building
maintenance for existing premises). However, NRM 3 does not address operational
costs or other soft costs associated with the operation of buildings or facilities.
NRM 3 follows the same framework, cost code structure and premise as NRM 1.
Consequently, NRM 3 also provides direction on how to quantify and measure
other items associated with building maintenance that are not reflected in the
measurable maintenance works items (e.g. maintenance contractors management
and administration charges, overheads and profit, other maintenance-related costs,
consultants fees and risks in connection with maintenance works.
Unlike capital building works projects, maintenance works are required to be carried
out from the day the building is put to use (or handed over to the employer) until
the end of its life. Accordingly, while the capital costs of building projects are usually
incurred by the building owner or developer over a relatively short term, costs in
connection with maintenance are incurred throughout the life of the building over
the long term. In view of this, NRM 3 also provides guidance on the measurement and
calculation of the time value of money (i.e. the present value), and guidance on using
the measured data to inform life cycle cost plans, as well as providing guidance on value
added tax (VAT), and enhanced capital allowances and other financial incentives.
Together, NRM 1 and NRM 3 provide the rules for measurement, as well as the
methodology for compiling, whole life cycle cost plans. Moreover, in the same way
that NRM 1 does for capital building works, the rules within NRM 3 provide a
Cost management
framework for analysing building maintenance costs so that maintenance cost data
is in a form that is readily usable in future cost estimates and cost plans for building
maintenance works.
1.8.4 BCIS Elemental Standard Form of Cost

Analysis (NRM Edition)
The BCIS Elemental Standard Form of Cost Analysis (NRM Edition) often
referred to as the BCIS SFCA provides a cost data capture methodology that allows
comparisons to be made between the cost of buildings and building elements. The
BCIS SFCA was first published in 1961 and was updated using the same elemental
and data structure in 1969 and 2008. The BCIS is a business division of the RICS.
In 2012, the BCIS SFCA published a new edition of the SFCA, which now shares
the same elemental definitions and cost data structure devised for NRM 1.
1.9 NRM 1 and building information modelling

(BIM)
Building information modelling, better known as BIM is a co-ordinated set of
processes, supported by technology that seeks to add value by creating, managing
and sharing the properties of a built asset throughout its life cycle. BIM incorporates
data physical, commercial, environmental and operational on every element of a
developments design.
The purported benefits of BIM are:
10
better outcomes through collaboration. All project team members different design
disciplines, the cost manager, project manager, employer, contractor, specialists
and suppliers use a single, shared 3D model, cultivating collaborative working
relationships. This is to ensure that all involved are focused on achieving best
value, from project inception to eventual decommissioning.
enhanced performance. BIM makes possible swift and accurate comparison of
different design options, enabling development of more efficient, cost-effective
and sustainable solutions.
optimised solutions. Through deployment of new generative modelling technologies,
solutions can be cost-effectively optimised against agreed parameters.
greater predictability. Capital building works projects can be visualised at an early
stage, giving owners, users and operators a clear idea of design intent and allowing
them to modify the design to achieve the outcomes they want. It is also advocated
that, in advance of construction, BIM will also enable the project team to build
the project in a virtual environment, rehearsing complex procedures, optimising
temporary works designs and planning procurement of materials, equipment and
manpower.
faster project delivery. Significant time savings are achievable by agreeing the
design concept early in building project development to eliminate late-stage
design changes; using standard design elements when practicable; resolving
complex construction details before the project goes on site; avoiding
clashes; taking advantage of intelligence and automation within the model
Cost management
to check design integrity and estimate quantities; producing fabrication and

construction drawings from the model; and using data to control construction
equipment.
reduced safety risk. Crowd behaviour and fire-modelling capability enable designs to
be optimised for public safety. Asset and facilities managers can use the 3D model
to enhance operational safety. Contractors can minimise construction risks by
reviewing complex details or procedures before going on site.
fits first time. Integrating multidisciplinary design inputs using a single 3D model
allows interface issues to be identified and resolved in advance of construction,
eliminating the cost and time impacts of redesign. It is also contended that BIM
enables new and existing assets to be integrated seamlessly.
reduced waste. Exact quantity take-offs mean that materials are not over-ordered.
Precise programme scheduling enables just-in-time delivery of materials and
equipment, reducing potential for damage. Use of BIM for automated fabrication
of equipment and components enables more efficient materials handling and waste
recovery.
whole life asset management. BIM models contain product information that
assists with commissioning, operation and maintenance activities for example
sequences for start-up and shut-down, interactive 3D diagrams showing how
to take apart and reassemble equipment items, and specifications allowing
replacement parts to be ordered.
continual improvement. Project team members can feed back information about
the performance of processes and items of equipment, driving improvements on
subsequent projects.
How does NRM 1 aid the BIM process? NRM 1 supports the BIM process by:
providing both a common work breakdown structure (WBS) and a cost
breakdown structure (CBS);
providing a common cost data structure;
providing a codification framework;
providing standard element definitions;
providing transparency of costs; and
supporting designing to a cost.
1.10 Benefits of the rules

What are the benefits of the rules? First and foremost, NRM 1 exemplifies best
practice it defines what good looks like in terms of cost estimating and cost
planning. It provides the basis for improved accuracy of estimating and better cost
advice that, in turn, will help establish more effective cost control systems and
procedures to instil greater employer and project team confidence in the cost advice
received from the cost manager. Additionally, cost estimates and cost plans produced
in accordance with NRM 1 should inspire greater trust in banks and other lenders
providing funding for construction projects that requests for funds have been properly
thought out by those wishing to obtain finance.
Although based on UK practice, the underlying philosophy of NRM 1 has worldwide application.
11
Cost management
The rules within NRM 1 are not restrictive, but provide a simple but powerful toolkit
for managing the total costs of a building project. They provide the following benefits:
Training and education:
promoting common sense;
tabulated information acting as an invaluable aide-memoire;
helping learning both measurement and construction knowledge (the rules
are aimed at students, learning, as much as practioners they have been written
with all levels of user in mind); and
establishing cost-estimating and cost-planning competencies required by
students, which universities and other learning establishments need to deliver.
Approach:
introducing formal estimating stages aligned to both the RIBA Plan of Work
and the OGC [Office of Government Commerce] Gateway Process;
presenting a clear framework, which facilitates a systematic approach to
compiling cost estimates and cost plans; and
providing a comprehensive work breakdown structure (WBS) and a cost
breakdown structure (CBS) for cost estimates and cost plans both for projects
comprising a single building and projects encompassing more than one building
or structure.
Measurement:
recognising that measurement is progressive (i.e. an iterative process which is
dependent upon the design information available);
providing a uniform basis on which to measure areas;
in the measurement of cost-significant items (i.e. components), adopting
Paretos principle (the 80:20 rule); that is, 80% of the cost of the building is in
20% of the items measured; and
providing a uniform approach to measurement of components (i.e. building
works items for new works and rehabilitation works, as well as for future
replacement).
Modern construction:
dealing with modern construction products and methods, including modular
units and complete buildings; and
considering sustainable construction.
Preliminaries:
defining main contractors preliminaries, which can be used for any
procurement or contract strategy (including prime contracting and private
finance initiatives).
Risk management:
supporting the need for a risk management strategy;
promoting use of risk allowances, and the view that risk allowances should not
be a standard percentage, but a properly considered assessment of the cost of
dealing with risk should it occur, which must be managed; and
defining four categories of risk (i.e. design development risk, construction risk,
employers change risks and employers other risks).
12
Cost management
Inflation:
defining two categories of inflation (i.e. tender inflation and construction inflation
with unexpected changes in market conditions being treated as a risk); and
defining measurement of inflation.
Cost management:
promoting budget setting using a cost limit, which includes allowances for
risk its purpose is to provide a realistic cost limit for project cost control
within which a construction project can proceed without further resource- and
time-intensive authorisation requirements;
helping establish more effective cost control systems;
providing essential guidance on dealing with non-construction-related costs
such as consultants fees and other development and project costs (the cost
of acquiring land and property, fees and charges, planning contributions,
decanting and relocation costs, marketing costs and the cost of finance); and
providing advice on how to deal with VAT, taxation allowances, taxation relief
and grants.
Accuracy of estimates:
defining the information required by the cost manager to produce cost estimates
and cost plans at each formal estimating stage; and
helping improve the accuracy of cost estimates and cost plans.
Innovation:
dealing with the total cost of delivering a building project, not simply
construction costs (total cost management);
Value management and value for money:
performing an essential part of a value-for-money framework particularly for
central government (e.g. Office of Government Commerce and Ministry of
Defence (MoD)), local government and other publicly funded organisations
that have an obligation to demonstrate that value for money has been achieved
in construction projects;
helping underpin a business case for a building project;
quantification of replacement components and building maintenance items for
the purpose of whole life cycle cost/value assessments;
aiding value management (VM) and value engineering (VE) processes;
affording greater transparency to cost estimates and cost plans (note:
transparency can assist with fraud prevention);
aiding actual cost scrutiny; and
helping improve clear and effective communication between the employer
and project team members thereby making sure that risks associated with the
building project are identified, analysed and responded to.
Procurement:
providing a method for codifying elemental cost plans so that they can be
converted to works packages for procurement, and cost management during the
construction stage; and
aiding cost management during the construction phase of a project.
13
Cost management
Data acquisition, analysis and evaluation:

providing a robust basis for capturing historical cost data in the form
required for future cost estimates and cost plans, thereby completing the cost
management cycle.
Usability:
ability to be computerised (i.e. cost-estimating and cost-planning systems,
together with integral reporting).
Quality control:
ability to be integrated into an organisations quality management system
(QMS).
The main benefits of NRM 1 are recapitulated in Figure 1.3.
Common sense
Aide-memoire
Training and education

Quality management
system (QMS)
Computerise
Help learning
Establish competencies
Quality control
Formal stages
Clear framework
Approach
Usability
Work breakdown structure (WBS)

Cost breakdown structure (CBS)
Robust
Consistent form
Completes cost
management cycle
Data capture
Data acquisition and

evaluation
Progressive
Uniform approach
Measurement
Cost significant items
Provides codified framework

Aids construction phase cost
management
Replacement components
Methods
Sustainable construction
Justify business case

Aids VM processes
Audit
New components
Products
Modern construction
Fraud prevention
and detection
Components
Procurement
VFM framework
Aids value engineering (VE)

processes
Area measurement
Value management (VM) and

value for money (Vfm)
Preliminaries
Benefits
Define
Use for any procurement or
contract strategy
Supports
Affords transparency
Design development
Risk management
Aids actual cost

scrutiny
Helps communication
Define risk categories
Construction
Employers changes
Employers other
Risk allowances
Total cost
management
(TCM)
Define cost managers

information requirements at
each stage
Innovation
Inflation
Define
Cost limit
Consultants fees
Non-construction-related items
Taxation
Incentives
14
Cost targets
Cost control systems
Cost management
Figure 1.3 Benefits of NRM 1
Construction
Measurement
Budget setting
Accuracy of estimates
Tender
Categories
Other development and

project costs
Cost management
Box 1.1 Key definitions

Value engineering an organised approach to the identification and
elimination of unnecessary cost. Unnecessary cost is cost which does not
provide use, or life, or quality, or appearance, or customer features. The
following tasks undertaken by cost managers are involved in VE practice:
cost estimating;
advising on cost limits and preparing budgets;
undertaking order of cost estimates for options (option appraisals);
measuring and describing construction work in terms of cost planning;
investment appraisal;
advising on whole life costs;
cost analysis;
benchmark analysis;
cost/benefit analysis;
evaluating alternative designs;
advising on cash flow forecasting;
forecasting expenditure flows; and
preparing and administering maintenance programmes.
Value management an approach which aims to establish, at the start of a
project, the strategic plan by which it should develop. This is partly achieved
through the use of a series of workshops at key stages in the development of
the project; and it is complemented by value-engineering techniques. These
also make use of workshop techniques, but are concerned with obtaining value
for money through an organised systematic approach, placing emphasis upon
whole life costing.
Value for money the relationship between economy (price), efficiency and
effectiveness. The VfM principle underpins decision making in public sector
procurement. Here, the definition of VfM is: The optimum combination of
whole-life cost and quality (or fitness for purpose) to meet users requirements.
This is rarely synonymous with price (adapted from CUP [Central Unit on
Procurement] Guidance Note No. 54).
Whole life costs the costs of acquiring a building or facility (including
consultancy, design and construction costs, and equipment), the costs of
operating it and the costs of maintaining it over its whole life through to its
disposal that is, the total ownership costs.
15
CH A P TE R
Cost estimating and cost

planning
Introduction
This chapter:
considers the composition of cost estimates and cost plans;
describes both the RIBA [Royal Institute of British Architects] Plan of Work and
OGC Gateway Process;
illustrates the interrelation between the cost-estimating and cost-planning stages
and both the RIBA Work Stages and the OGC Gateways;
provides an overview of the cost-estimating and cost-planning stages;
considers the impact of procurement and contract strategies on the cost-planning
process; and
identifies responsibility for cost planning.
2.1 Cost estimates and cost plans

Essentially, cost estimates and cost plans are made up of two distinct elements: the
base cost estimate and the risk allowance:
Base cost estimate an estimate of all those items which are known or for which
a degree of certainty exists; and
Risk allowance an allowance for dealing with the financial impact of the
employers residual risks, should they materialise.
The risk allowance should be steadily reduced over time as the risks or their
consequences are minimised through good risk management.
The composition of cost estimates and cost plans will depend on the employers
requirements. For example, an employer might simply require the cost manager to
manage construction costs. Equally, the employer might require the cost manager
to manage all costs in connection with a building project total cost management
(TCM). As a consequence, NRM 1 takes into consideration the varying degrees of
cost management services that might be requested and, as a result, deals with cost
estimates under the following five principal headings:
17
Cost estimating and cost planning
1
2
3
4
5
works estimate;
project and design team fees estimate;
other development and project costs estimate;
risk allowances estimate; and
inflation estimate.
Inflation estimate
Risk allowance
estimate
Risk allowance
estimate
Other development and
project costs estimate
Project and design team
fees estimate
Total building
project
estimate
Base cost
estimate
Works cost estimate
Figure 2.1 Build-up of total building project estimate
The works, project and design team fees, and other development and project costs
estimates represent the base cost estimate, while the risk allowances and inflation
estimates comprise the risk allowance. The risk allowance, when added to the base
cost estimate, will give the cost limit most likely to be required for the building
project (refer to Figure 2.1).
2.2 Process models for managing and designing

building projects
18
Throughout the rules, references are made to both the RIBA Plan of Work and the
OGC Gateway Process, and to the RIBA Work Stages and OGC Gateways within.
These are the two most commonly used process models for managing and designing
building projects.
The RIBA Plan of Work is a construction industry-recognised framework that
organises the process of managing and designing building projects and administering
building contracts into a number of key Work Stages. The RIBA Plan of Work
consists of eight sequential stages (identified by the numbers 0 to 7), and the employer
is required to approve the design and latest cost estimate, or cost plan, before
authorising commencement of the next RIBA Work Stage. Despite this apparent
linear nature, the sequence or content of RIBA Work Stages might need to be varied
or overlapped to suit the proposed procurement method. Consequently, when two or
more Work Stages are combined, it is not always transparent when a building project
is moving from one stage to another. As such, it is an ideal tool, provided that it is
conceptualised as providing the basic outline of the building project process.
As an alternative to the RIBA Plan of Work, many public sector organisations
have adopted the OGC Gateway Process for managing and designing building
projects. This process examines programmes and projects at key decision points in
their life cycle. It looks ahead to provide assurance that the employer can progress
to the next stage. Typically a project will undergo three reviews before commitment
to invest and two looking at service implementation and confirmation of the
operational benefits.
Prior to the employer authorising the project team to progress to each RIBA Work
Stage or OGC Gateway, the cost estimate or cost plan produced for the preceding
RIBA Work Stage or OGC Gateway must be reviewed by the employer and the
project team to ensure that:
the latest estimate is compared with the previously approved cost limit (i.e.
authorised budget) and does not exceed it without fully reasoned justification;
the cost target for each element of the building project is reasonable and up to
date;
the latest estimate is made up of the base estimate and the risk allowance; and
funds are available for the intended expenditure.
Consequently, the rules advocate a cost management strategy that comprises a
number of formal cost-estimating and cost-planning stages, which correspond with
both the key RIBA Work Stages (i.e. from the RIBA Plan of Work) and the OGC
Gateways (i.e. from the OGC Gateway Process). Figure 2.2 shows the relationship
between the RICS formal cost-estimating and cost-planning stages and both the
RIBA Work Stages and OGC Gateways.
2.3 An overview of the cost-estimating and

cost-planning stages
The rules identify a number of formal stages at which cost estimates and cost plans
are reported to the employer. These stages are applicable to most building projects
and are linked to both the RIBA Work Stages and the OGC Gateways.
Order of cost estimates prepared at RIBA Work Stages 0 (Strategic Definition)
and 1 (Preparation of Brief), or OGC Gateway 2 (Delivery Strategy), to establish
if the proposed building project is affordable and, if affordable, to determine a
realistic cost limit (budget). A number of order of cost estimates for a number of
different building options or development scenarios are normally undertaken and
compared.
Formal cost plan 1 prepared for the preferred option from the appraisal, or
business case study, at RIBA Work Stage 2 (Concept Design), or OGC Gateway
3A (Design Brief and Concept Approval). This cost plan is prepared at a point
where the scope of work is fully defined and key criteria are specified but no
detailed design has commenced. Formal cost plan 1 will provide the frame of
reference for the subsequent cost plan (formal cost plan 2).
Formal cost plan 2 prepared at RIBA Work Stage 3 (Developed Design), or
OGC Gateway 3B (Detailed Design Approval), as a result of the cost checking
19
RIBA Work Stages
RICS Formal Cost Estimating

and Elemental Cost Planning
Stages
1
Business Justification
Delivery Strategy
3A
Design Brief and

Concept Approval
(See note below)
3B
Detailed Design
Approval
(See note below)
3C
Investment Decision
(See note below)
Strategic Definition
Order of cost estimate
OGC Gateways
(Applicable to Building
Projects)
Preparation of Brief
Concept Design
Formal Cost Plan 1
Developed Design
Formal Cost Plan 2
Formal Cost Plan 3

Pre-tender estimate
4
Technical Design
Pricing Documents
(for obtaining tender prices)
Post-tender estimate
Construction
Handover and Closeout
Readiness for Service
In Use
Operations Review and

Benefits Realisation
Figure 2.2 Relationship between the RICS formal cost-estimating and cost-planning stages and
both the RIBA Work Stages and OGC Gateways (adapted from the RIBA Outline Plan of Work 2013)
Note: A prerequisite of OGC Gateway Review 3: Investment Decision is that the design brief, concept
design and detailed design have been approved and signed off by the Senior Responsible Owner (SRO). For
the purpose of comparing the OGC Gateway Process with the RIBA Work Stages, these two decision points
are referred to as OGC Gateway 3A (Design Brief and Concept Approval) and OGC Gateway 3B (Detailed
Design Approval), with OGC Gateway 3C representing the final OGC Gateway Review 3 (Investment
Decision)
20
of cost-significant components and cost targets set for cost plan 1 as more design
information and further information about the site becomes available. Formal cost
plan 2 will provide the frame of reference for formal cost plan 3.
Formal cost plan 3 prepared at RIBA Work Stage 4 (Technical Design) or OGC
Gateway 3C (Investment Decision), as a result of cost checking the developing
design against the cost targets established in formal cost plan 2.
Pre-tender estimate prepared immediately before calling the first tenders for
construction. This is the final cost check undertaken by the cost manager before
tender bids for the building project, or any part of the building project, are
obtained. It is most likely that the pre-tender estimate will be based on a formal
cost plan. However, whether the pre-tender estimate is based on formal cost plan
1, 2 or 3 will depend on which stage of design development tenders are to be
sought. For contract strategies such as design and build, the pre-tender estimate
might be based on formal cost plan 1.
Post-tender estimate prepared after all the construction tenders have
been received and evaluated. It is based on the outcome of any post-tender
negotiations, including the resolution of any tender qualifications and tender price
adjustments. The post-tender estimate will include the actual known construction
costs and any residual risks. The aim of this estimate is to corroborate the funding
level required by the employer to complete the building project, including cost
updates of project and design team fees, as well as other development and project
costs, where they form part of the costs being managed by the cost manager.
When reporting the outcome of the tendering process to the employer, the cost
manager should include a summary of the post-tender estimate(s). The post-tender
estimate should be fairly accurate because the uncertainties of market conditions
have been removed. Post-tender estimates are used as the control estimate during
construction.
Cost-estimating and cost-planning processes in the context of the RIBA Work Stages
and the OGC Gateways are set out in Tables 2.1 and 2.2, respectively.
2.4 Impact of procurement and contract

strategies on cost planning
Different procurement and contract strategies will impact on the degree of cost
planning undertaken by the cost manager and the use of cost plans. For contract
strategies such as design and build or management contracting (chosen to produce
earlier construction completion, made possible through overlapping activities),
the principles of cost management throughout the design process remain identical,
although the estimating stages cannot be separated so clearly.
In order to achieve an early start on site an employer might be content to
procure the building project by means of a design and build strategy, simply using
the drawings on which planning approval was granted and outline specification
information as the basis of the employers requirements. On the other hand, if an
employer wishes to retain greater control over the final design of the building, then
the building project might be tendered after completion of detailed design and formal
cost plan 2. Under a design and build strategy, cost management during detailed
design is carried out by the contractor since they are already committed to a firm
21
Table 2.1 Cost-estimating, cost-planning and cost control processes in the context of the
RIBA Work Stages
RIBA Work Stage
Process
Function(s)
Method
Strategic
Definition
Preparation of
Brief
Option costing
prepare order of
cost estimate(s).
1. Establish estimated
cost of proposed
building project or
comparative costs for
a number of options.
2. Determine viability,
affordability of building
project.
3. Establish initial cost
limit (i.e. authorised
budget) for resultant
building project.
1. Floor area method, functional

unit method and/or elemental
method.
2. Apply unit rates interpolated
from historical cost data.
Concept
Design
Cost planning
prepare initial cost
plan (formal cost
plan 1);
or
Cost estimating
prepare initial cost
estimate.
1. Establish cost targets

for each group
element, element and
sub-element.
2. Confirm cost limit (i.e.
authorised budget) for
building project.
1. Quantify elements, subelements and components (to

be measured in accordance
with the NRM 1 tabulated
rules of measurement).
2. Apply unit rates interpolated
from historical cost data and/
or obtained via market testing.
Note:
(a) Where cost planning is not
used, approximate estimating
techniques can be used
to establish the current
estimated cost. This will
help to identify if changes
are required to the scope of
works, design or specification
prior to progressing to the
next RIBA Work Stage.
Developed
Design
Cost planning
prepare firm cost
plan (formal cost
plan 2);
or
Cost checking
prepare firm cost
estimate.
1. Cost check of
developing design
against cost plan.
2. Reappraise cost
targets for each group
element, element and
sub-element.
3. Confirm revisions
to cost targets for
each group element,
element and subelement.
4. Identify cost savings
and/or cost concerns.
5. Confirm adequacy of
cost limit for building
project.
1. Check developing design

drawings, specification
information, as more design
information about the site
becomes available.
2. Quantify elements, subelements and components for
which additional information
has been received.
3. Check adequacy of unit rates
used in formal cost plan 1.
4. Apply unit rates to additional
items interpolated from
historical cost data and/or
obtained via market testing.
Notes:
(a) Cost planning is a continuous
process which includes
comparative cost studies of
22

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NRM1 Cost Management

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First published 2014

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Part 2 Order of cost estimates

Order of cost estimates an overview

Part 3 Cost planning

Cost planning an overview

Calculating the building works estimate

Project and design team fees (group element 11)

Part 5 Writing cost estimate and cost plan reports

Part 6 Designing pricing documents using NRM 1

Part 7 Analysing bids and collecting data using NRM 1

36 Analysing bids and collecting cost data

2 Cost estimating and cost planning

Part 2 Order of cost estimates

4 Commencing an order of cost estimate

Planning an order of cost estimate

5 Preparing an order of cost estimate

6 Computing the works cost estimate

7 Order of cost estimate a worked example

8 Preparation of an initial elemental cost model using the elemental

Part 3 Cost planning

11 Format, structure and codification of cost plans

12 Preparing a cost plan

14 Facilitating works (group element 0)

15 Substructure (group element 1)

Lowest floor construction (sub-element 1.1.3)

16 Superstructure (group element 2)

17 Internal finishes (group element 3)

18 Fittings, furniture and equipment (group element 4)

19 Services (group element 5)

20 Prefabricated buildings and building units (group element 6)

21 Work to existing buildings (group element 7)

22 External works (group element 8)

23 Deriving unit rates for building components, sub-elements and elements

24 Calculating the building works estimate

25 Main contractors preliminaries (group element 9)

26 Main contractors overheads and profit (group element 10)

Subcontractors overheads and profit

27 Calculating the works cost estimate

28 Project and design team fees (group element 11)

29 Other development and project costs (group element 12)

30 Setting and managing risk allowances (group element 13)

31 Estimating the possible effects of inflation (group element 14)

32 Establishing the cost limit

33 Taxes and incentives

Part 5 Writing cost estimate and cost plan reports

Part 6 Designing pricing documents using NRM 1

Part 7 Analysing bids and collecting data using NRM 1

The cost management cycle (the Benge Cycle)

Measurement of external walls

Range of analysed buildings for estimating cost targets for group

Calculation of total GIFA of a multifunction building

Formulation of descriptions for roof coverings

Formulation of descriptions for specialist lighting installations

22.23 Formulation of descriptions for external street lighting systems

Construction inflation estimate

Foreword Sean Tompkins

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Foreword Richard Steer

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Foreword Stuart Earl